DEF Ltd produces a specialised type of metal sheeting.Demand is 5 000 sheets per year.Each production run costs $1 750 to set up and storage costs are $25 per sheet per year.What is the optimal size of a production run?

Question

Quizplus · Accepted Answer

The optimal size of a production run can be calculated using the Economic Order Quantity (EOQ) formula: EOQ = sqrt((2DS)/H), where D is the demand, S is the setup cost per order, and H is the holding cost per unit per year. Plugging in the values: EOQ = sqrt((2*5000*1750)/25) = sqrt(700000) = 837 sheets.

DEF Ltd Produces a Specialised Type of Metal Sheeting